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Viacom the right company to anchor sports-free pay TV bundle?

Weekly time spent watching TV Q4 2015 Q4 2016

Is the market ready for a cheap pay TV bundle omitting sports and news? Viacom’s CEO thinks so, but his content might not be the best placed to anchor it.

Viacom anchored $20/month bundle

Viacom says it is in advanced discussions with satellite and cable operators to offer a $20 pay TV bundle that omits news and sports channels. Bob Bakish, CEO of Viacom, thinks the low-price point will even allow some networks from competitors to be included in the bundle. He characterizes the impact of such an entertainment-oriented bundle as:

“That will be a very exciting development in the marketplace, and is a very positive development for Viacom.”

Is the market ready for such an approach, and will it help Viacom?

Market is ready for the approach

There is no question that pay TV operators need to do something to shake up the unhealthy dynamic driving the cost of pay TV inexorably upwards. Consider the situation at Comcast. Over the last 6 years, Comcast programming costs have increased an average of 8.9% a year, ARPU an average of 3.4%, and U.S. inflation an average of 1.6%. In other words, the cost increases in pay TV rates have increased double the inflation rate, and still profit margins have been eroded dramatically by the increase in content costs.

What you pay for sportsThe biggest driver of content costs bar none is sports. Many pay TV packages include ESPN 1 & 2, Fox Sports 1 & 2, TNT/TBS, and NBC and CBS Sports Networks. Whatyoupayforsports.com reports that each pay TV subscriber receiving these channels pays about $13 a month for them. What’s more, these networks take that money and out of it pay $29.95 a year to the NBA in license fees, $21.73 to the NFL, and $17.79 to MLB.

Creating a smaller bundle omitting sports and news will certainly allow operators to offer a very low cost bundle. But is Viacom a good brand to anchor it?

Is a Viacom anchored skinny bundle viable?

When Mr. Bakish took the reins of Viacom at the end of 2016, he faced the daunting task of turning around plummeting ratings at some of the company’s most well-known channels. For example, MTV’s audience dropped almost 50% between 2011 and 2016 in the 18-49 . Viacom’s entire TV line-up saw revenue drop 3% in the second quarter of 2016 alone. Mr. Bakish has refocused the company around its six most popular brands: MTV, Comedy Central, BET, Nickelodeon, Nick Jr., and Paramount.
Undoubtedly, Viacom needs something to reconnect these predominantly youth-oriented brands with the intended audience. Unfortunately, a skinny pay TV bundle might not be the way to do it.

Traditional linear TV viewing is plummeting among younger audiences. Live plus timeshifted viewing fell a third in the 12-17-year-old age group between Q4 2013 and Q4 2016. It was down 31% in the 18-24-year-olds and 20% in 25-34-year-olds.

Much of the young’s attention has been diverted to social platforms like Facebook and Snapchat, free sites like YouTube, and SVOD services like Netflix.  For example, Nielsen reports that nearly 50% of 18-34 -year-olds with a connected TV watch 750 minutes per week on the device. 70% spend 232 minutes per week using social networks on their smartphone.

Mr. Bakish could find that what he is offering, traditional television with high ad loads, is just not what the young viewer is looking for at any price.

Why it matters

A sports-free bundle will allow pay TV to offer a low-cost bundle to entertainment oriented customers.

Targeting that bundle at 18-34-year-olds with traditional linear TV products isn’t likely to make much headway.

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